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Bakshi, Kapadia, and Madan (2003) risk-neutral moment estimators: A Gram–Charlier density approach

Author

Listed:
  • Pakorn Aschakulporn

    (University of Otago)

  • Jin E. Zhang

    (University of Otago)

Abstract

This paper is a sequel to Aschakulporn and Zhang (J Futures Mark 42(3):365–388, 2022). The errors of the Bakshi et al. (Rev Financ Stud 16(1):101–143, 2003) risk-neutral moment estimators is studied using the Gram–Charlier density—with the skewness and excess kurtosis specified. To obtain skewness with (absolute) errors less than $$10^{-3}$$ 10 - 3 , the range of strikes ( $$K_{\min }, K_{\max }$$ K min , K max ) must contain at least 3/4 to 4/3 of the forward price and have a step size ( $$\Delta K$$ Δ K ) of no more than 0.1% of the forward price. The range of strikes and step size corresponds to truncation and discretization errors, respectively. This is consistent to Aschakulporn and Zhang (2022) for non-volatile market periods.

Suggested Citation

  • Pakorn Aschakulporn & Jin E. Zhang, 2022. "Bakshi, Kapadia, and Madan (2003) risk-neutral moment estimators: A Gram–Charlier density approach," Review of Derivatives Research, Springer, vol. 25(3), pages 233-281, October.
    • Handle: RePEc:kap:revdev:v:25:y:2022:i:3:d:10.1007_s11147-022-09187-x
    DOI: 10.1007/s11147-022-09187-x
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    References listed on IDEAS

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    Cited by:

    1. Junyu Zhang & Xinfeng Ruan & Jin E. Zhang, 2023. "Risk‐neutral moments and return predictability: International evidence," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(5), pages 1086-1111, August.

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    More about this item

    Keywords

    Risk-neutral moment estimators; Gram–Charlier densities; Skewness; Kurtosis;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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